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An efficient and well-functioning government securities market is central to the smooth functioning of financial markets more generally. It enables the use of the market for pricing and hedging positions in other fixed income securities, facilitating issuance and secondary market trading in such securities.

Government securities' creditworthiness and liquidity can also make them benchmarks for risk-free rates and an important store of value, especially during times of market turmoil. A well-functioning market also facilitates the low-cost financing of government expenditures and the implementation of monetary policy, which is often carried out through the market.

The Indian government bond market is particularly worthy of study. For one, there is its large and growing size and high liquidity. Within Asia, India has the fourth largest government bond market after Japan, China, and South Korea with 569 billion USD of outstanding government bonds as of March 2014 (Asian Development Bank, 2014). The annual turnover of the secondary market for government of India bonds - over four times the debt outstanding - is comparable to that of Japan and South Korea, and much higher than that of China. Numerous studies describe this important market, including Nath, Rajaram and Ghose (2009), Mohan and Ray (2009), Gandhi (2012), Reddy (2002), and Mohanty (2002).

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